I have been working my way through Access Economics’ Broadband Report it wrote on behalf of Telstra. (Here it is). As I stated earlier, it is good to actually have this because it is impossible to evaluate Telstra’s claims without it. Recall that they showed that a two year delay in High Speed Broadband roll outs would result in a total loss to the economy of $3.2b from now until 2020.
[DDET Read more]
What Access Economics have done to get this is model a carrier-wish-list scenario against various forms of delay or reducing the overall spend on the network. The good news they argue is that all of the investments massively pay off in terms of social net present value but on the whole issue of whether delay is a problem or not, there is an issue of ‘garbage in-garbage out.’
Actually, that is not entirely fair as my issue is that Access Economics only choose one bit of garbage whereas I would like them to have run their model a few times based on different assumptions as a form of ‘stress test.’
The two assumptions I have problems with are on the assumed productivity benefits from high speed broadband and the social discount rate. The former is a ‘guesstimate’ based on all of the studies (that the report nicely summarises) on the value of ICT and broadband throughout the world. Their number is that high speed broadband will add 0.1 percent to productivity per annum on average (with little at first and then a quick jump up as broadband is adopted). Of course, that rate of adoption depends on the broadband price, download limits, etc; none of which has assumption stated. In other words it is an decidedly uneconomic model (unless of course it is isn’t but they have chosen not to reveal it). The point is that the number drives everything and so if it was three quarters of that, the results would be very different. But as Access Economics declined to test alternatives we don’t know.
The second assumption is that the social discount rate is seven percent. This strikes me as high as we usually use about 4 percent for these things. What is interesting is that if you do have a too high discount rate you end up reducing the NPV from the investment. Sounds like that is against a broadband advocate’s favour. But that isn’t the case if you are advocating for no delay. In that case, the high discount rate will, for an equivalently productive investment, inflate the losses from delay. I suspect that if we used the usual 4 percent, it would be a wash and with it Telstra’s headline number before the Senate.
Finally, all of this assumes no improvement in Internet technology with other networks becoming available prior to 2016 that are superior. Yes, really? It doesn’t even include Telstra’s own cable upgrades to 100Mbps.
So make what you will of all this. Basically, the value of 12Mbps broadband is according to this report, one thirtieth the value the Government claims it is. That is a big whopping difference. Second, it is completely unclear we are suffering because of delays that may or may not be occurring. But, finally, this report is probably the best cost-benefit analysis of high speed broadband for Australia that has been done. So choose your standard and that will tell you how to feel.